Statement of Chairman Tom Harkin (D-IA) at the HELP Committee Hearing “Leveling the Playing Field: Protecting Workers and Businesses Affected by Misclassification”

As Prepared for Delivery

Thursday, June 17, 2010Kate Cyrul / Bergen Kenny (202) 224-3254

“I want to welcome everyone to today’s hearing. We’re here today to talk about worker misclassification, an issue of critical importance to millions of working men and women across the country.

“We all know that these are very difficult times for our economy, especially for working families. Millions of Americans are now living paycheck to paycheck, and employees across the nation are working hard but still struggling to make ends meet.

“Over the past few years, it has become clear that a few unscrupulous employers are making these challenges even more difficult for their workers by intentionally misclassifying them as ‘independent contractors’ to gain an advantage over their law-abiding competitors. When these companies play games with workers’ rights, everyone loses—workers, taxpayers and responsible businesses that play by the rules.

“Misclassified workers simply don’t receive the same protections under our laws. Basic standards such as the minimum wage, the right to overtime pay, unemployment compensation, workers’ compensation, safety and health laws and antidiscrimination protections don’t apply to independent contractors. That means the construction worker who falls and breaks his leg is denied workers’ compensation, and the truck driver who works 60 hours a week doesn’t receive the overtime pay his family deserves to help cover the rising costs of food and energy.

“Misclassification is also costing the federal and state governments billions of dollars in unpaid revenues, including the payments that support our unemployment insurance and workers’ compensation systems.

“Businesses are hurt by misclassification, too. An employer that misclassifies its workers may be able to outbid employers complying with the law – sometimes by as much as 30 percent. The problem is especially bad in cash industries where workers are often paid 'off the books' – making it virtually impossible to prove that employers are intentionally misclassifying workers and violating their rights. In fact, a 2009 GAO report states that some employers specifically choose to operate on a cash basis because of the ease with which they are able to misclassify their workers.

“That sad truth is that law-abiding employers lose business everyday to scofflaw employers that intentionally misclassify their workers.

“It should never pay to break the law, so we here in Congress have a duty to fix the problem and make sure everyone is competing on a level playing field.

“The scope of the misclassification problem is staggering. There are more than 10.3 million workers in the United States who are treated as independent contractors. That’s roughly 7.3 percent of the workforce. And a Department of Labor study found that as many as 30 percent of businesses misclassified employees as independent contractors.

“For example, in its first year of operation, Iowa’s misclassification program uncovered 182 employers misclassifying 1,565 workers. That amounts to over $27 million in total unreported wages, $1 million in unemployment taxes due, and $340,000 in unemployment penalties and interest.

“It will take a concerted effort by federal and state agencies to solve the misclassification problem. Fortunately, we are off to a good start. In January 2010, the Department of Labor hired more investigators to pursue misclassification. The Internal Revenue Service is also working on a comprehensive nationwide employment tax audit program aimed, in part, to catch companies that improperly fail to withhold taxes and pay Social Security and Medicare premiums on the wages of workers misclassified as independent contractors.

“Many states have also stepped up to the plate and begun cracking down on misclassification. They have already recovered millions of dollars from employers who didn’t pay their fair share to workers and to the states. These leaders deserve great credit for standing up for workers and responsible employers.

“But federal and state agencies can’t do it alone. We also need federal legislation to hold employers accountable for breaking wage and hour laws by misclassifying their workers. That’s why Senator Brown and I introduced the Employee Misclassification Prevention Act.

“This important legislation would go a long way toward protecting workers and their families from unfair misclassification. In particular, it would require employers to tell people whether or not they are being treated as employees and – in some circumstances – to keep records of hours worked and compensation paid. Those are things law-abiding employers are already doing. The law would also give us the tools we need to punish crooked employers that are misclassifying their workers.

“I hope that today’s hearing will be the first step in a bipartisan process to pass legislation to end misclassification once and for all, and I look forward to working with others members of Congress on this issue.”